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News : US Economy Last Updated: Oct 8, 2013 - 8:50 AM


US overtakes Russia & Saudi Arabia in oil/ natural gas production in 2013
By Michael Hennigan, Finfacts founder and editor
Oct 7, 2013 - 8:38 AM

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Source: US Energy Information Administration. Note: Petroleum production includes crude oil, natural gas liquids, condensates, refinery processing gain, and other liquids, including biofuels. Barrels per day oil equivalent were calculated using a conversion factor of 1 barrel oil equivalent = 5.55 million British thermal units (Btu).

The US Energy Information Administration (EIA) estimates that the United States will be the world's top producer of oil and natural gas hydrocarbons in 2013, surpassing Russia and Saudi Arabia. For the United States and Russia, total petroleum and natural gas hydrocarbon production, in energy content terms, is almost evenly split between petroleum and natural gas. Saudi Arabia's production, on the other hand, heavily favours petroleum.

Since 2008, US petroleum production has increased 7 quadrillion Btu (British thermal unit), with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States. Russia and Saudi Arabia each increased their combined hydrocarbon output by about 1 quadrillion Btu over the past five years.

The EIA says comparisons of petroleum and natural gas production across countries are not always easy. Differences in energy content of crude oil, condensates, and natural gas produced throughout these countries make accurate conversions difficult. There are also questions regarding the inclusion of biofuels and refinery gain in the calculations. Total petroleum and natural gas hydrocarbon production estimates for the United States and Russia for 2011 and 2012 were roughly equivalent - - within 1 quadrillion Btu of one another. In 2013, however, the production estimates widen out, with the United States expected to outproduce Russia by 5 quadrillion Btu.

"This is a remarkable turn of events," Adam Sieminski, head of the US Energy Information Administration, a unit of the Department of Energy, told The Wall Street Journal . "This is a new era of thinking about market conditions, and opportunities created by these conditions, that you wouldn't in am years have dreamed about."

The US produced the equivalent of about 22m barrels a day of oil, natural gas and related fuels in July, according to figures from the EIA and the International Energy Agency. Neither agency has data for Russia's gas output this year, but Moscow's forecast for 2013 oil-and-gas production works out to about 21.8m barrels a day.

The Journal says US imports of natural gas and crude oil have fallen 32% and 15%, respectively, in the past five years, narrowing the US trade deficit. And since the US is such a big consumer of energy, the shift to producing more of its own oil and gas has left substantial fuel supplies available for other buyers. Nations that rely on peddling petroleum for their economic strength and political clout face dwindling market power as a result.

Oil prices so far remain high, however, closing Friday in the US at $103.10 a barrel, up about 18% from a year ago.

The Journal says Russia produced an average of 10.8m barrels of oil and related fuel a day in the first half of this year. That was about 900,000 barrels a day more than the US --  but down from a gap of 3m barrels a day (b/d) a few years ago, according to the IEA.

"Russia looks like the main loser in the global market," said Tatiana Mitrova, of the Russian Academy of Sciences' Energy Research Institute. More than 40% of Russia's budget comes from oil-and-gas related duties and taxes, she said.

The institute has forecast that
Russian oil exports could fall 25% to 30% after 2015, reducing gross domestic product more than $100bn.

“Tight oil will not affect Opec at all,” Abdalla Salem el-Badri, the OPEC oil cartel's secretary general, told the Oil & Money conference, hosted by Energy Intelligence and the International Herald Tribune, last Tuesday.

The 12-member producer group has consistently played down the impact of the US unconventional oil revolution, although it has agreed to study the impact. “We should look at tight oil (from shale rock) as a new liquid and welcome it,” el-Badri said. He estimates output could increase from 2.5m b/d now to 5m b/d by the middle of the decade. “I don’t think this quantity of liquids would cause much trouble for Opec,” he said.

El-Badri added that tight oil suffers from high decline rates and high production costs, which he estimated at $90 per barrel, making output dependent on high oil prices. “If prices drop to $60-$70/bbl, tight oil will be out of the market altogether,” he said. He estimated that by 2018, the decline rate means production could start dropping from its 5m b/d high.

He said Opec production is expected to remain around 30m b/d until 2016, although he put the call on Opec in the last quarter of 2013 at 30.7m b/d.

The Opec chief termed US energy independence a myth. “There is nothing called independence in the oil industry,” he said. “The people who call for it in the US do not know the oil industry.”

Energy Intelligence reports that Peter Voser, Royal Dutch Shell chief executive, said in his keynote address on Tuesday that global decline rates of 4%-6% a year mean the industry needs to “build another Saudi Arabia” -- which pumps 10m b/d - - every 30 months.

The International Energy Agency (IEA) reckons the world will have to find 40m b/d simply to offset declines between now and 2030, let alone the volumes required to meet incremental demand.

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